Grandparents are spreading their wealth to their grandchildren

Paying for the grandkids’ education or investing for their future is a generous idea but beware of a few details before giving your family’s finances a boost

9153

GENEROUS grandparents are giving money to the youngest members of their families as they worry about children’s financial and employment futures.

From education costs and investments to practical help such as paying for music or sport lessons, some grandparents are finding novel ways to help out financially, but there are a few tips and traps that they should understand.

Lifeplan Funds Management says almost one quarter of its education savings plans are started by investors aged 60 or older.

“Private schools say 15-20 per cent of school fees are paid for by grandparents,” says head of Lifeplan Matt Walsh.

He has noticed “generation-skipping”, where ageing parents are bypassing their own children when it comes to financial assistance.

“The grandparents are saying I’ve done enough for them. I put them through school, helped out with their home deposit and when they had kids, and they’re still going on international holidays,” he says.

“They don’t necessarily trust their Generation X kids to save it.”

TAX BENEFITS

Education savings plans are a tax-free investment when used for education purposes, while investment bonds — another savings option for grandparents — are usually tax-free after 10 years.

In contrast, savings accounts have no tax advantages and low interest rates. Education savings plans and investment bonds allow people to use managed funds that can hold higher-growth assets such as shares and property.

“If saving for education, including university, you have an 18-year time horizon so you should use growth assets,” Walsh says.

Take care with direct investments for grandchildren in savings accounts or shares, because any income they earn above $416 a year is slugged at tax rates up to 66 per cent.

Planning for Prosperity senior adviser Bob Budreika says an option for grandparents who like to think ultra-long term is putting put some money into superannuation for them.

“People aren’t aware that you can have superannuation for children — there is no age minimum,” Budreika says. The super option isn’t for everyone, because the grandkids won’t be able to touch it until at least age 70 based on today’s rules, and governments of both sides are constantly changing the super rules.

Private schools say 15-20 per cent of school fees are paid for by grandparents.

CONTROL YOUR GENEROSITY

Giving is great, and it’s nicer emotionally to help out now rather than after you die, but older Australians also need to think about themselves.

“We have seen that in some instances people gift, but they don’t look at their own situation, for example their longevity,” Budreika says.

He says money given to family members is “more meaningful if there’s a specific purpose”.

ESTATE PLANNING

Wills are the traditional way to leave money behind, but wills can get challenged — and assets such as superannuation and investment bonds sit outside the will structure — so good advice is important.

“If there are a lot of kids involved, get the will redone to account for that gift, because you don’t want to cause a problem for the family down the track,” Budreika says.

Cashed-up grandparents with a pile of property assets can also consider reverse mortgages as a way of accessing some wealth before they die.

THE FUTURE

Whatever the future holds, the huge wealth of baby boomer grandparents is likely to play a bigger role in their families’ finances.

“The current generation of grandparents have more funds than in the past,” says Lifeplan’s Walsh.

“They also see the world as being a competitive place that’s harder to find jobs, and they see the key to future employment is education.

“They want some assets behind their grandkids. It wasn’t that long ago that only doctors’ kids became doctors and lawyers’ kids became lawyers and no one else got in.”